The Madhya Pradesh High Court has appointed a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, clarifying that threshold issues such as limitation and jurisdiction are to be decided by the arbitral tribunal and not the referral court. The decision reaffirms the doctrine of kompetenz-kompetenz and restricts judicial intervention at the pre-reference stage to the existence of a valid arbitration agreement.
Background & Facts
The Genesis
The applicants and the non-applicant were partners in a partnership firm, Maruti Developers, originally constituted on 06.04.2010 at Bhopal with five partners, including applicant No.1. The partnership was reconstituted on 17.10.2020, inducting the non-applicant as a partner with a 25% share in profits and losses. A further reconstitution occurred on 11.02.2021, under which the applicants and other existing partners retired from the firm with effect from 18.10.2020, leaving the non-applicant and Shri Rajendra Singh as continuing partners.
The Underlying Transaction
On 11.02.2021, the parties executed a Memorandum of Understanding (MoU), under which the applicants transferred their partnership shares to the non-applicant. The non-applicant agreed to pay a total consideration of Rs. 23,00,00,000 (Rupees Twenty-Three Crores Only) through post-dated cheques in instalments. The applicants fully performed their obligations under the MoU by transferring their partnership interests. However, the non-applicant paid only Rs. 64,00,000 (Rupees Sixty-Four Lakhs Only) against the agreed consideration.
The Dispute
A cheque bearing No. 000350 for Rs. 89,00,000, dated 18.09.2025, issued by the non-applicant was dishonoured on 19.09.2025. The applicants issued a legal notice dated 13.10.2025 invoking Clause 8 (Arbitration Clause) of the MoU and proposing the appointment of Shri M.P. Tiwari, Retired District & Sessions Judge, as the sole arbitrator. The non-applicant, by reply dated 27.10.2025, denied liability and rejected the arbitration as vexatious and legally unsustainable.
Procedural History
- 11.02.2021: MoU executed transferring partnership shares and agreeing to payment of Rs. 23,00,00,000.
- 18.09.2025: Cheque for Rs. 89,00,000 issued by non-applicant dishonoured.
- 13.10.2025: Applicants issued legal notice invoking arbitration clause and nominating arbitrator.
- 27.10.2025: Non-applicant denied liability and rejected arbitration.
- Present Application: Filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator.
Relief Sought
The applicants sought appointment of an arbitrator to adjudicate disputes arising from the non-payment of the agreed consideration of Rs. 23,00,00,000, along with interest at 18% per annum, and the dishonour of the cheque dated 18.09.2025.
The Legal Issue
The central question was whether the Madhya Pradesh High Court, while exercising jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996, could examine threshold issues such as limitation and jurisdiction, or whether such issues must be left to the arbitral tribunal under the doctrine of kompetenz-kompetenz.
Arguments Presented
For the Applicants
The applicants contended that Clause 8 of the MoU dated 11.02.2021 contained a valid arbitration agreement under which all disputes arising between the parties were to be referred to arbitration. They invoked arbitration by notice dated 13.10.2025 and nominated Shri Mohan P. Tiwari as their arbitrator. The non-applicant failed to nominate its arbitrator within the prescribed period of 30 days, and the dispute arose due to non-payment of the agreed amount. The applicants argued that the referral court's jurisdiction under Section 11(6) was confined to examining the existence of the arbitration agreement, and all other issues, including limitation, were to be decided by the arbitral tribunal.
For the Respondent
The non-applicant submitted that the claim was vexatious and legally unsustainable, and that the cause of action accrued on 31.03.2021, making the claim barred by limitation. It argued that the arbitration clause was invoked only on 13.10.2025, and thus the claim was time-barred under the Limitation Act. The non-applicant also contended that no partnership deed was executed, and no shares were ascertained, making the claim speculative.
The Court's Analysis
The Court examined the legislative intent behind the Arbitration and Conciliation Act, 1996, particularly the 2015 Amendment Act, which inserted Section 11(6-A) to restrict judicial intervention at the pre-reference stage to the existence of an arbitration agreement. The Court noted that the doctrine of kompetenz-kompetenz empowers the arbitral tribunal to rule on its own jurisdiction, including objections to the existence or validity of the arbitration agreement. The Court relied on the Supreme Court's decisions in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. (2020) 2 SCC 455, Aslam Ismail Khan Deshmukh v. ASAP Fluids (P) Ltd. (2025) 1 SCC 502, and Vidya Drolia v. Durga Trading Corpn. (2021) 2 SCC 1, which held that threshold issues such as limitation and jurisdiction are to be decided by the arbitral tribunal.
"The question in regard to whether the claim is vexatious or legally unsustainable or a stale case or not is not the domain of the High Court to decide as it contains disputed question of facts, which is to be determined by the Arbitrator."
The Court observed that the referral court's role under Section 11(6) is limited to examining the existence of the arbitration agreement, and all other issues, including limitation, are to be decided by the arbitral tribunal. The Court relied on the Supreme Court's decision in Arif Azim Co. Ltd. v. Aptech Limited (2024) 5 SCC 313, which reiterated that the referral court must not conduct an intricate enquiry into the matter where the claim raised by the applicant is time-barred, and such issues must be left for determination by the arbitral tribunal.
The Court also noted that the 2019 Amendment Act, which omitted Section 11(6-A), did not alter the position that threshold issues are to be decided by the arbitral tribunal. The Court held that the referral court's jurisdiction is confined to the existence of the arbitration agreement, and all other issues are to be decided by the arbitral tribunal under Section 16 of the Act.
The Verdict
The Court allowed the application and appointed Shri Justice Ved Prakash, Former Judge, High Court of M.P., as the sole arbitrator to resolve the dispute between the parties. The arbitrator was directed to issue notices, fix dates, and conduct arbitration proceedings at Bhopal. The parties were directed to deposit necessary charges and fees as per the M.P. Arbitration Center (Domestic and International) Rules, 2019. The Court clarified that all other rights and contentions of the parties were left open for adjudication by the arbitrator.
What This Means For Similar Cases
Threshold Issues Are for the Arbitrator
- The referral court's jurisdiction under Section 11(6) is confined to examining the existence of the arbitration agreement.
- Threshold issues such as limitation, jurisdiction, and arbitrability are to be decided by the arbitral tribunal under the doctrine of kompetenz-kompetenz.
- Practitioners must frame arguments to highlight the limited scope of judicial intervention at the referral stage.
Costs as a Deterrent Against Vexatious Claims
- The arbitral tribunal may direct that the costs of arbitration be borne by the party that is found to have abused the process of law.
- This serves as a deterrent against vexatious claims and ensures that parties do not misuse the arbitration process.
The Role of the Referral Court
- The referral court must not conduct an intricate enquiry into the merits of the claim or the threshold issues.
- The court's role is limited to examining the existence of the arbitration agreement and referring the dispute to arbitration.
- This approach upholds the intention of the parties to refer all disputes to arbitration and ensures expeditious disposal of disputes.
